Ajit K. Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1975-76, the following questions of law have been referred to this court : "(i) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of Rs. 88,111 being the casual leave payments provided in the books of the assessee for the financial year 1974-75 ? (2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 5,30,476 being the gratuity calculated on the basis of actuarial valuation was, when no provision for gratuity was made in the books of the assessee for the year under consideration, deductible in the computation of the total income of the assessee for the year ?"
(2.) Shortly stated, the facts are that, under the First Industrial Tribunal Award, 1958, the assessee was under the statutory obligation to make the payment to its clerical employees and others by way of casual leave payment. It is also an admitted position that, in the years prior to the year under consideration, the assessee was following a hybrid system of accounting. It was following the mercantile system of accounting in all matters except the aforesaid casual leave payment which was on cash basis. In its assessment for the year under consideration, the assessee claimed deductions on account of (1) the aforesaid casual leave payment of Rs. 58,804 made by it to its employees during the year in respect of the accounting year 1973-74 ; and (2) the casual leave payment of Rs. 88,111 provided for in the books, though not paid in the year under consideration for the financial year 1974-75. The deduction at Sl. (1) mentioned was allowed by the Income-tax Officer. As far as the provision made in the books of Rs. 88,111 for the financial year 1974-75 is concerned, the Income-tax Officer has negatived the said claim of the assessee on the ground that the accepted principle of accounting on the subject by the assessee was cash system, i.e., payment basis and not on provision basis. This was the practice followed by the assessee in all the previous years and the above change in the year under consideration is a case of clear deviation from the said accepted principle of accounting on the subject. There could not be double deduction in the matter of casual leave payment under the said award in one year. This view of the Income-tax Officer had been upheld by the Commissioner of Income-tax (Appeals) VI, Calcutta.
(3.) In the appeal filed by the assessee, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) on the point at issue. According to the Tribunal, the change of the method was not bona fide. The Tribunal, therefore affirmed the order of the Commissioner of Income-tax (Appeals). The correctness of this view is at issue before us. The choice of the method of his accounting lies with the assessee. It is open to the assessee to follow one system of accounting in respect of one source and another system in respect of another source. It is also open to an assessee to change his method of accounting regularly employed by him. The change should be bona fide and not a casual departure from the regular method which has hitherto been accepted by him for a number of years. Merely because in the subsequent assessment year, there was a loss and the bonus actually paid in that year could not be effectively set-off but had to be carried forward would furnish no justification for permitting a change in the method of accounting. Once having chosen and regularly employed the cash system in respect of the transaction in question that is, in the matter of its liability for casual leave payment in the earlier years, the assessee cannot make a departure in the year under consideration to give a go-by to that method and claim the deductions both on payment basis for the earlier year and on mercantile basis for the year under consideration by making a provision in the accounts. The change was only for the year under reference. It was not the case of the assessee that he intended to adopt and in fact had adopted thereafter the changed method of accounting. Although . Section 145 (1) in terms does not require any enquiry into the bona fides but it becomes relevant where the conduct of the assessee shows that such change was not introduced for continuance henceforth but it was a casual departure from the method regularly employed till then. The conduct of the assessee in this case proves the absence of bona fides on its part. We are, therefore, of the view that the Tribunal was justified in negativing the claim of the assessee for deduction of the provision for casual leave payments. For the reasons aforesaid, the first question is answered in the negative and in favour of the Revenue.;